Users can upgrade their smartphones or tablets after 12 months

AT&T is offering no-contract smartphones and tablets on monthly installments, with the promise of an annual upgrade, taking on similar offers by competitor T-Mobile US.

Starting July 26, the U.S. carrier is offering customers in the country a new smartphone or tablet every year with "no down payment, no activation fee, no upgrade fee and no financing fees," the company said Tuesday.

After 12 payments, customers can trade the device in and upgrade to a new one, again without a down payment, or they can continue to use the earlier device without further payments after 20 months. After the upgrade, the remaining unbilled installment payments on the previous device are waived.

AT&T's no-contract "Next" plan saves it the expense on hefty subsidies on smartphones for customers, which carriers typically hope to make up through service contracts usually running for two years. It also offers customers the opportunity to upgrade to newer smartphone and tablet models. The AT&T Next program is open to new customers or existing subscribers that are eligible for an upgrade.

T-Mobile launched last week an upgrade offer that will let subscribers for a monthly fee of US$10 trade in their existing phones for a new model at a T-Mobile store as often as twice per year, once they've been on its Jump plan for at least six months. Customers don't have to wait until the end of a two-year contract or finish paying off a device in monthly installments. When they upgrade phones, customers will not have to pay remaining installments and can purchase new phones for the same price as new customers. The $10 fee also offers protection against malfunction, damage, loss or theft.

In March, T-Mobile introduced plans that let consumers pay for a new phone in installments rather than sign a two-year contract. Customers can also use their own unlocked device.

AT&T Next is available for any current smartphone or tablet available from the carrier. Device installments range from $15 to $50 with the Samsung Galaxy S4 having a monthly installment of $32, the company said. If the wireless service is discontinued, the balance installments fall due. Discounted handset offers coupled with service plans will continue, AT&T said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com